KUALA LUMPUR: Despite corporate earnings staging a broad-based recovery in the quarter ended June 30, 2026, research houses cautioned that the improvement is unlikely to trigger a major market re-rating.

This is because although corporate earnings recorded stronger earnings delivery and positive forecast revisions, geopolitical and macroeconomic risks continue to weigh on investor sentiment, said RHB Research and MBSB Research.

"Prevailing geopolitical and global macroeconomic challenges will cap the market's absolute upside. However, the market will remain focused on fundamentals as corporate earnings performance will be a key determinant of its fundamental upside.

"While earnings adjustments were positive, they were not enough to move the needle – the market will likely remaining rangebound with downside support from robust liquidity conditions," said RHB Research's Alexander Chia in a strategy note on Sept 2.

RHB Research maintains its year-end target for the FTSE Bursa Malaysia KLCI at 1,750 points, despite the June 2026 quarter reporting season presenting a sharp turnaround from the preceding quarter and slightly ahead of expectations.

For the first quarter since December 2020, none of the sectors under its coverage recorded aggregate earnings that missed expectations, while six sectors, namely automotive, oil and gas (O&G), transport, gaming, healthcare and rubber products, beat expectations.

The research house said 21.2 per cent of stocks under its coverage beat expectations, compared with 13.6 per cent in the March quarter, while the proportion that missed fell to 21.9 per cent from 31.8 per cent.

This improved the misses to beats ratio to 1.0 from 2.6 in the previous quarter.

RHB Research attributed the resilience of corporate earnings to Malaysia's position as a net O&G exporter, robust commodity prices and the ongoing technology sector upcycle.

It also raised its normalised net earnings estimates for its stock basket by 0.8 per cent for 2026 and 0.2 per cent for 2027.

For FBM KLCI stocks, earnings estimates were raised by 0.9 per cent for 2026 and 0.6 per cent for 2027, mainly supported by plantations, O&G, healthcare, telecommunications and property.

However, earnings cuts were recorded in banking, construction, energy and consumer sectors.

Meanwhile, MBSB Research reckons that the equity market would remain largely sanguine going forward, underpinned by continued resilience in economic development, as well as positive earnings growth in 2026.

It maintained its 2026 FBM KLCI target at 1,770 points.

"Nevertheless, the conflict in the Middle East remains unsettling. We are keeping our eyes on the various potential outcomes," the research firm said in a strategy note released on Sept 2.

MBSB Research similarly found that the June quarter earnings season was largely on target, with aggregate normalised earnings of the 30 FBM KLCI constituents reaching RM18.7 billion.

This represented growth of 3.0 per cent quarter-on-quarter and 11.8 per cent year-on-year.

The improvement was mainly driven by higher earnings from plantation counters including SD Guthrie Bhd and IOI Corp Bhd, financial services players Hong Leong Bank Bhd and Malayan Banking Bhd, and industrial products and services company Sunway Bhd.

On a year-on-year basis, higher earnings from industrial products and services, particularly Petronas Chemicals Group Bhd and Press Metal Aluminium Holdings Bhd, as well as the plantation sector, were key contributors.

MBSB Research said 22 per cent of stocks under its coverage reported earnings above expectations, compared with 11 per cent in the previous quarter, while 52 per cent came in within expectations.

It also raised aggregate earnings forecasts for stocks under its coverage by 0.5 per cent for financial year 2026 and 1.6 per cent for financial year 2027 (FY27).

RHB Research also highlighted funding cost pressures among banks as they seek to meet strong loan demand amid higher bond yields, while asset quality issues have begun to emerge in the household segment.

However, it said the conflict in the Middle East remained a key risk to the equity market.

RHB Research expects investors to maintain a trading mentality, with continued rotational interest into laggard stocks and sectors.

It remains overweight on plantations, energy, O&G, property, construction, basic materials, technology, healthcare and transport.